Commercial traders have put their money where their mouths are through their strong buying of copper below $3.20 per pound throughout 2013. We put a little more than two years’ worth of data on this morning’s chart in order to illustrate a couple of key elements in the copper futures market.
First of all, there’s a significant double bottom at $3.00 per/lb. dating back to October of 2011. This level was also tested and held, last June. The recent concerns regarding the Chinese solar company’s bond default has sent copper futures plunging. There are two reasons for this. The default brings the first, “roach in the kitchen” aspect into play. How many more bad loans are out there? Also, the lending markets in China have been accepting copper as loan collateral for years, now. If there are bad loans and/or banks begin to call poorly performing loans which have been backed by copper supplies, these copper stocks would have to be sold to meet the banks’ demands thus flooding the market with physical copper.
The scenario that we feel is in play is a bit less dramatic. As a trade, we’re not overly concerned with the copper market’s performance over the next six months or a year. We’re looking for an opportunity to profit from an oversold market that is being strongly supported through strong commercial buying. This morning’s action shows copper near the highs for the last couple of days. Buying may copper above the recent high of $2.9815 on a stop should put us in the market on the long side with rebound momentum in our favor. If the buy stop entry is filled, we’ll risk the trade to the overnight low of $2.9215. The first obvious resistance is around $3.15.
